Thursday, October 14, 2010

Gridlock May Not Be Good as Double Dip Still Looms

There is a high expectation that the Repubs take at least one house of Congress, blocking any further expansion of the Obama agenda, and leading to gridlock for the next two years. There is a general view that gridlock is good for stocks, so a post today that looked at the data caught my eye. PragCap reported on a Fidelity analysis that shows NO positive correlation between mid-term gridlock and stocks:

Large-cap stock returns during post-midterm election years have been about the same, whether or not the outcome resulted in gridlock or harmony (i.e. one party controls both houses of Congress and the White House). Small-cap stocks, meanwhile, outperformed in years of political harmony compared to gridlock.

PragCap goes on to comment that gridlock may be bad for the economy in the circumstances we are in. The next chart shows how the stimulus at least buoyed GDP during the past 18 months, and (as I have commented) once past Peak Stimulus the shrinking stimulus is actually a drag on GDP growth that makes a coming double-dip more likely (the black line is the drag from less stimulus plus less inventory rebuilding):

There is hope that the private sector can more than overcome the drag, and expectations have been that the Q3 GDP report (which is released right before the mid-term elections) would be at least flat to Q2.

In August, however, the trade deficit widened, and it acts as an additional drag on GDP growth: the change in exports less imports is a major component of GDP growth, and a wider trade deficit means it could come in more negative relative to the prior quarter. There had been an import surge in Q2 which was largely based on slightly higher oil prices plus restocking for holiday sales, so expectations were for this component to decrease between Q2 and Q3, which would have pushed Q3 GDP growth up on this component.

Ironically, a poor GDP report boosts the odds of QE2, which should boost stocks until they run up enough to account for the purported benefits of QE. If gridlock results in less fiscal stimulus and less effort to fix serious structural problems (unemployment, exports, bank lending), the normal rise in stocks between the mid-terms and the next election may be less than expected.

Roger D,
bidu stock symbol down on the
close -1.75 points.
dow industrials pretty
much unchanged. dow industrials
are not following bidu as
you previously commented both
going up together.i did not
see any new news .
the other day the only
news looks extremely negative.
still no
huge volume as happens on a
triangle breakout up or down.
if you are long based on your
comments the other day you
might want to hedge your bet....
the microsoft news was absolutely
horrible
for the company.
you could still
be correct if a positive news event
comes out fast to counteract the
extremely negative news the other
day. the triangle looks
completed for the past 13 market
days. when it breaks on heavy volume
it should move at the minimum
several points in one day.

At this point anything is possible for a single stock. GOOG is a great example as that will pop no matter what the financials do. There are many financials breaking down today and the question is will the big money bail before the shit hits the fan or will they continue to ride the euphoria higher. My take is the smart money is selling here.

straight up from august lows for 140 sp handles
13 down days out of 36 days from august lows

if s&p closes down, the bears come out foaming at the mouth, pronouncing their next great prediction of whopping cataclysm.

if you need further proof of how foolish and wrong they are, then maybe you have a sick need to be abused. thats a pschological illness.

it's not an issue of who's right or wrong, or who's your buddy, or who you are trying to befriend or impress.

perma bear and perma bulls are both on the same ship, the USS Fade Us, whose rudder is stuck at left fool rudder. It simply sails in a big circle endlessly with its passengers puking over the rail on their respective sides of the ship.

"it is not possible to underestimate the stupidity of perma bulls and perma bears."

wave rust

P.S.
watching the perma fools is a great way to make money. Just fade them.

you want more complexity in your life? then get married, have kids then try to figure out why your pet likes you, and your kids don't. LOL

the market is so simple, except for the human beings who feel the need try to predict it, instead of simply trading it.

Market traders and investors are of two very distinct mental and emotional groups. The two groups are the "Intelligent but Stupid", and, the "Smart but Dumb".

The first group knows they have some level of intelligence but repeatedly do the stupidest things. They are absolutely sure they can figure out the markets because they are so intelligent.

They are usually in denial about what they did and search for someone or something to blame it on. They refuse to learn from their mistakes. They refuse to do their own homework. They live in the box that they think in. They fail 95% of the time and blame it on the successful traders/investors ,,,, "who are the crooks, of course."

The second group is the exact opposite. They know they are dumb, and they know they must get smarter. And, they do eventually. They respect the market.

They have learned from doing their own work, learning from their mistakes, and improving their techniques and tools. They don't have any ego at stake when they make a judgement or a trade, because they know being wrong is a given in trading. It happens.

They try to begin every day with an attitude that says, "I'm dumb, Mr. Market. Teach me something today and make me smarter. I'll use anything I learn to try to make more money."

Trading from the dumb side, with tools you've developed for your own trading, means you know what to do and what not to do when the market does something interesting.

The first group stops learning after finding what they "know" is the secret to the markets. The second group never stops learning. Ever! They know that the secret to the markets lies between their ears. They are the secret.

The market is simple. It's you. You are the market. No Zen here. You are either the problem or the solution to your trading failures and successes. Why? because you get to pick which one you want to be, the problem or the solution.

The weak dollar commodity trade (and anticipation of QE-2) is getting a bit long in the tooth for me. I've been on this trade for the last year and am feeling a bit uneasy with every talking head from a major brokerage company NOW recommending exposure to metals, mining, and energy stocks.

Today, Goldman raised their forecast for Gold, Silver, Copper, Cotton, Oil, and other commodities ... dramatically increasing their 12-month price targets from a further 15% price appreciation to 30% for all three metals, 54% for cotton, and sees crude oil over $100 per barrel.

As many people well know on this blog, I have been a MAJOR BULL on the coal, iron ore, copper, and steel names . . . buying every "dip" along the way this last year. Names like ACI, BTU, CLF, FCX, and WLT.

However, this "trade" is becoming quite crowded for me now. It's no longer a GREEN light for me. Changing to YELLOW now.

The bank are screaming "big trouble" here and no amount of QE2 will help as real estate still continues to head south across the country. When it looks to good to be true,it probably is. Sell,sell and sell.

Michael, are you into China's, Hong Kong, and Sydney's real estate? Those markets just baffles me. It seems like they can keep on going up and up given how everyone in those market are already saying that "Real estate never drop?"

Can you imagine Shanghai selling for USD$1500/sq for the high-end apartments, or in HK, where high-end are now fetching $2000/sq?

Vancouver real estate selling for 800k on avg on the West side. It's now selling for 2M on avg. Talk about the lost gain here!!! That's 1.2M of lost profit in 8 years!!!! And Canada does not charge capital gain on self-residence.

Once CNBC gets through the 9-11 am socialist hours (I switch to cartoons), you can actually get some good interviews with real people telling real stories with unvarnished facts.

In case you missed these, here are two Real estate related interviews, one with Kudlow and Long Island banker, and then one with Faber intewrviewing an attorney on the MBS legalities, related to JPM and BAC.

The Spiral Calendar is a tricky tool to utilize. As a stand-alone piece of analysis, it is easy to conclude that it is ‘wrong’ more often than it is ‘right.’ And yet, I can statistically prove that Spiral Calendar relationships exist in markets in quantities greater than random, i.e. this isn’t witchcraft! (or numerology!). The recent crude oil bubble provided the ideal situation for the Spiral Calendar to be re-introduced, it was a clearly emotional market where the masses were behaving with lunacy. Once crude oil attained a truly vertical price rise in 2008, it was just a matter of doing the analysis and pinpointing the likely top. The amazingly successful forecast of the crude oil peak has re-affirmed the Spiral Calendar’s place as a useful analytical tool and an important breakthrough in understanding the forces operating on crowd financial behavior.

Look at the month/weekly/daily gold chart with the Ichimoku cloud. They are ALL just dying to test the kijun-sen. CCI showing fair amount of bearish divergence. There was significant buying to create these charts.

neo,
if my memory serves me right, a few days back you only posted a different version of the chart above where you labelled it as a terminal impulse in wave 1 position as the start of a new bull phase after 4-6 yr low.
now you ve made terminal impulse into a reverse alternation triangle ...

wave, haven't read it, will track down the opinion. In general, it is time for the law to be respected. The foreclosuregate mess is all due to banksters trying to skirt the law and getting away with it. They need to be forced to file proper title and follow proper process before foreclosing. This pervades the so-called Ruling Class and its activities for at least the past decade. The Tea Party really got started after the TARP was passed and then reused for different purposes. Lawless. And then people in power like Geithner can cheat on taxes and get away with it, publicly, visibly.

Here is one of my favorite quotes:

A society in which men and women are governed by belief in an enduring moral order,

by a strong sense of right and wrong, by personal convictions about justice and honor,

will be a good society - whatever political machinery it may utilize;

while a society in which men and women are morally adrift, ignorant of norms, and

intent chiefly upon gratification of appetites, will be a bad society - no matter

how many people vote and no matter how liberal its formal constitution may be.